02 January 2008

Gloom re the economy

I have to be somewhat cautious while assembling this blog not to include too many rants or gloom-and-doom pieces because then I risk upsetting visitors who are looking for entertainment and don't want to be confronted by warnings of fiscal Armageddon. But I do think someone needs to occasionally highlight the bad news; the mainstream media tend to underplay or sugarcoat such offerings, perhaps for fear of making things worse.

In the interests of "full disclosure" re possible biases, I should point out that I turned bearish on the economy and the markets more than a year ago and began selling my stocks and emailing a few close friends re my concerns re economy and real estate in particular. This summer I began actively shorting certain sectors (real estate first, consumer stocks more recently) using exchange-traded funds. I'm not recommending that anyone else do the same, because everyone has unique financial needs and different risk tolerances.

All of the above is a prelude to this next bit, which I've extracted from a website (rgemonitor.com) maintained by Nouriel Roubini. I first heard an interview with this guy last summer on Bloomberg (via satellite radio) when the housing crisis was just heating up. He is an economist with excellent credentials (from Wikipedia) -
Nouriel Roubini born on March 29, 1958 in Istanbul, Turkey, is a professor of economics at New York University. He is also the chairman of Roubini Global Economics.

He served in various roles at the Treasury Department, including Senior Advisor to the Under Secretary for International Affairs and Director of the Office of Policy Development and Review (July 1999 - June 2000). Previously, he was a Senior Economist for International Affairs on the Staff of the President's Council of Economic Advisors (July 1998 - July 1999).

Roubini spent one year at the Hebrew University of Jerusalem before receiving his B.A. summa cum laude in Economics from the Bocconi University (Milan, Italy) in 1982. He received his Ph.D from Harvard University in 1988.

Here's how he starts his first article of the year:
Recession ahead...
Nouriel Roubini | Jan 02, 2008

As expected - and argued in this space for a while - a US recession is now unavoidable: the year started with (these being the top Bloomberg news headlines today):

- the manufacturing ISM for December plunging to 47.7 (with a reading below 50 signaling an outright contraction of the manufacturing sector);

- retail sales being lousy in the holiday period (they fell 0.7% in December relative to November according to Redbook Research and they fell 0.2% relative to the week before in the week ending on December 29th according to the ICSC/UBS securities weekly index); and they fallen in real terms in this holiday period relative to a year ago;

- growth of internet sales being mediocre;

- LBO deals being dropped (the PHH- Blackstone deal) as financing shrinks.

- oil surging to $98 a barrel;

- National City slashing payout and jobs;

- the outlook for 2008 Detroit car makers and overall auto sales being awful.

- Global manufacturing activity fell sharply in December to a near 4-1/2 year low; so the world is not decoupling from the US hard landing.

No wonder the stock market started the year with another bearish fall; and as predicted here yesterday a lousy stock market in 2007 will look good compared to an awful stock market in 2008.

The combination of the worst housing recession ever getting worse, a severe liquidity and credit crunch being worse now than in August, oil close to $100, capex spending by the corporate sector falling for four months nows, commercial real estate being in serious trouble, the labor market beginning its slack (as initial claims and continuing claims are surging), and a shopped-out, saving-less and debt-burdened consumer having stopped its shopping spree this holiday season will all lead to a severe - rather than mild - recession in 2008.

He could certainly be wrong or have biases skewing his judgment. But I think the viewpoint is at least worth considering. Those with the interest (and courage) to read further can do so at this link, which also includes some interesting commentary after the main article.

That's enough for now. I need to balance this out with some cartoons or something.

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